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The amount of money moving around the economy is way behind the targets set by the Bank of England, indicating the Old Lady's high-profile policy of quantiative easing is as yet failing to work.
But the Bank appeared to rule out a dramatic escalation of attempts to get banks to set money free into the economy, during an unprecedented meeting with 50 economists in Threadneedle Street today over its quantitative easing framework.
Official figures out today showed that the M4 broad measure of money supply slowed in August to 0.2% from 0.4% in July.
The City's immediate reaction was that this raises further doubts whether the Bank's £175 billion efforts to aid the economy — or by printing money in the layman's argot — is working.
“The latest broad money figures suggest quantiative easing is still having a pretty limited impact and that it is unlikely to ensure that the economic recovery gathers momentum,” said Vicky Redwood, economist at consultancy Capital Economics.
“The [Bank's] Monetary Policy Committee's preferred measure of M4 rose by just 0.2%. The three-month annualised rate was 3.9%.
“That is well off the 6% to 9% annual rates that [Governor] Mervyn King has said that he is aiming for.”
Fears over the money supply came against a backdrop of other depressing official data showing further sharp falls in bank lending despite a six-month programme of attempting to pump in billions to reflate the economy.
At the Bank's meeting with economists this morning it reiterated its current quantitative easing framework.
That appears to rule out a speculated move to negative interest rates — charging banks to deposit cash with the central bank rather than using that money to open up lending to the wider economy.
The meeting, led by the Bank's big three policy setters outside of the Governor himself — Charlie Bean, Paul Fisher and Spencer Dale — was the first of its kind in living memory outside of biannual talks with City economists.
Philip Shaw, chief economist at Investec, said: “It was not a crisis meeting, more a case of dealing with misconcepetions that have crept in among City economists. It was, I think, a genuine case of the Bank being more open, stepping in and explaining.”
Reader views (8)
Did anyone really believe that printing money and debasing its value could solve the problem. The motto used to "safe as the Bank-of-England". Now it's "What was that useless chancellor's name". Insecure as the Bank-of-England!
- Frederick, London, 30/09/2009 07:45
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I think the banks no the true extent of the losses and are preparing themselves. Legal action against financial bodies who knowlingly sold unaffordable debt obligations to those wishing to own their own homes will eventually expose the monster of corporate greed. The governments who are now in power are guilty. Guilty of crimes against humanity.
- Nick, Spalding, 29/09/2009 21:33
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Great, we now owe huge amounts of money for these QE activities and will be paying interest and the loan back through higher taxes and reduced public services... only to find that the money we as tax payers are bankrupting our future and our families future for is actually still sitting in the Bank of England with the sole purpose of improving the balance sheets of businesses (banks) that went bust because they had no fear of risk because they knew that they were too big and important to fail.
These same banks are all quietly improving their margins through every possible lever possible which means we also are paying record usary rates for any bank "service" which just adds insult to injury.
What a complete and utter waste of taxpayers money.
- Stephen, Swindon, United Kingdom, 29/09/2009 20:47
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Well that's strange because labour ministers are telling us that QA has worked and the recession is over!! How do this incompetent government get away with all these lies and deceptions? And why aren't our journalists questioning them??
- Margy, London, 29/09/2009 20:36
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We won't see this working but what we will see is at some stage the economy will flip straight into high inflation and more real misery.
Wee Gordy can talk the talk on economics but he's surrounded by students like himself with no work experience and by the time they realise whats happening Sterling will be in shreds. Why else would Blair make sure his kids have Irish passports!
- Mike, London, 29/09/2009 19:18
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Richard Kennard
If you think about it properly, what the second world war did was to give a mega dose of the New Deal, proving that FDR was simply too timid. Indeed, his listening to the prognostications of the soothsayers - that budget deficits even in Depressions are wrong - led to the tightening of policy in 1935/36 and collapse back into Depression in 1938.
So contrary to proving your point it suggests the exact opposite.
- William, London, 29/09/2009 17:27
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Of course these measures are not working - they never do really. It was WW2 that ended the Great Depression; not the New Deal and all the public works projects. Politicians and central bankers just want to be seen to doing someing no matter how ineffectual. There's much more economic pain to come: this isn't the beginning of the end; it's not even the end of the beginning.
- Richard Kennard, Welling, 29/09/2009 15:36
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What's new? The so called experts quite obviously don't know what they are doing. AND they're getting paid for it.
- Ralph, London, 29/09/2009 14:08
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